Jake's View
PUBLISHED : Sunday, 03 March, 2013, 12:00am
UPDATED : Sunday, 03 March, 2013, 3:32am

An age-old problem and the sums that just don't add up


Jake van der Kamp is a native of the Netherlands, a Canadian citizen, and a longtime Hong Kong resident. He started as a South China Morning Post business reporter in 1978, soon made a career change to investment analyst and returned to the newspaper in 1998 as a financial columnist.

According to the latest projection, the number of elderly people will increase significantly to 2.56 million by 2041, representing 30 per cent of our population.

John Tsang Chun-wah
2013 budget speech

Let's start by setting the precision of this forecast into perspective. The chart shows you three official forecasts for Hong Kong's long-term population growth. The middle one is the one referred to in the budget.

So if two different forecasts made by our statisticians over the space of just two years can barely get within half a million people of each other for the year 2039 and entirely ignore an external forecast of an actual population decline, how can John Whiskers know that we will have exactly 2.56 million elderly in 2041?

But let's say that his forecast is right. He then poses a dilemma for us to consider. The forecast implies that in 2041 there will be a ratio of only 1.8 working people to every elderly (and presumably retired) person. How can we possibly support them all? Just think of the medical bills alone.

And on this argument he then delivers us a finger wagging lesson - Don't mess with our reserves. We have HK$734 billion saved up in the kitty and a good deal of it is already spoken for. We can't just throw it away in handouts. We may need it to keep our elderly alive in 30 years.

Once again, the first difficulty I have here is with the numbers. Mr Tsang's HK$734 billion in reserves includes only the government's deposits with the Exchange Fund. It entirely ignores placements by other statutory bodies and the fund's accumulated profits. The real reserves figure is HK$1.6 trillion.

But I have a bigger quibble with the notion that much of the money is already spoken for. Specifically, Mr Tsang cited civil service pension obligations with a net present value of HK$600 billion.

He forgets two things. The first is that his forecasts of government operating expenditure already include pension payments.

He double-counts them by also talking of them as a future lump sum obligation. This is somewhat like having your cake and eating it too.

Of more importance, he forgets that in 2000 the government moved the civil service from a defined benefit to a defined contribution pension scheme. The people who were already on that lip-smacking defined benefit scheme at the time get to keep it, of course, but new hires after 2000 get only what they themselves put in plus any investment returns on that money.

Crucially, the government's own estimates project that all civil servants with defined benefit pensions will have retired by 2040. This says that one year later, the year that so worries Mr Tsang, all of that HK$600 billion he wants to keep safe for (doubly-counted) pension obligations will no longer be needed for that purpose.

The money can be used for anything at all then and, what is more, the regular pension payments from the operating account will also start to decline rapidly from that point onwards.

This is HK$600 billion in today's money (and much more yet with accumulated investments profits by 2040) that can be used for old age benefits. Mr Tsang has little need to worry about supporting the elderly in the distant future.

I'm mystified as to what makes him such a miser with our money. Is it purely a bureaucratic mindset that shudders at any uncertainty and seeks to stave it off by squirrelling away money?

I do recognise the likely outcome, however. Others will see that treasure hoard and eventually get their hands on it and squander it. They won't spend it on supporting the elderly.



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